'Gas price hike to incentivise investment in sector'

A nearly two-fold hike in natural gas prices will incentivise investment in the hydrocarbon sector and help reduce the energy import bill, India Inc said Friday.

New Delhi: A nearly two-fold hike in natural gas prices will incentivise investment in the hydrocarbon sector and help reduce the energy import bill, India Inc said Friday.

Fertiliser producers, however, said that the move would lead to rise in government's subsidy bill by Rs 11,000 crore per annum if urea prices are not raised in proportionate to gas rates.

Welcoming the government's decision to raise gas prices to USD 8.4 per mmBTu from April next year, industry body CII said: "The rise in gas price will not only encourage the upstream companies to invest in exploring more challenging frontiers to augment gas production for the country, but a good amount of this increased price will flow back to the government in terms of royalty and dividend."

Another chamber FICCI said: "The revision in natural gas price will bring in the much required technology and risk capital from foreign majors to tap vast unexplored resources in the deep and ultra deep water frontier basins."

"This decision will bring in the much-needed investments in the hydrocarbon sector that are required to reduce the debilitating effect of increasing energy imports upon the economy," P M S Prasad, Executive Director at Reliance Industries, said.

Crisil Research President Mukesh Agarwal said that moving towards "market determined pricing will over the longer term attract investments from exploration and production companies" which would result in lower dependence on import of gas.

"We welcome the government's approval to hike the natural gas price as it will help fund investment in exploration, which would ultimately help in reducing the hefty energy import bill," Assocham Secretary General D S Rawat said.

The government yesterday approved near doubling of natural gas prices to USD 8.4 from April 1 next year, a move which will also result in rise in power tariff, urea cost and CNG prices.

The Fertiliser Association of India (FAI) criticised the hike in natural gas price and said: "If urea prices are not raised in proportionate to gas price, extra subsidy burden will be Rs 11,000 crore per annum."

Any additional subsidy burden will add to woes of the fertiliser industry which has not been getting timely subsidy from government for selling urea at a lower price, FAI Director General Satish Chander said.
Natural gas accounts for more than 80 percent of all input costs to urea production. Urea is currently sold at a fixed MRP of Rs 5,360 per tonne. The government reimburses the difference between the cost of production and MRP in form of subsidy to fertiliser companies.

For 2013-14 fiscal, the government has estimated Rs 21,000 crore subsidy for indigenous urea fertiliser.
The FAI said the hike in natural gas price will not have impact on fertiliser industry this year because the new gas prices will be effective from April 2014.

It, however, sought increase in urea price to promote balanced use of fertilisers. Currently, urea consumption is higher as its prices are much lower than the decontrolled fertilisers like di-ammonium phosphate (DAP).

The Managing Director of cooperative fertiliser major IFFCO, U S Awasthi, said, "Currently, the industry is facing problem of delay in (subsidy) payments. This price rise will further accentuate the problems of the industry."

He suggested that the government should develop some other mechanism to provide subsidy or support to the farmers, may be direct cash transfer of subsidy to farmers.

That apart, Awasthi said that since the hike in the gas price has been given to bring investments in order to increase the natural gas production indigenously, the same philosophy should be applied to fertilizer industry.

"The fertilizers should be freed from the control of government and treated as the part of market driven economy," he noted.

The country produces 22 million tonne of urea, against the requirement of 32 million tonne. The rest is imported.